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April 27, 2005

Productivity and Performance Management

Over at CIO.com, Christopher Koch, CIO's Executive Editor, blogged in his Koch's IT Strategy channel (Apr 14, 2005 "Productivity and Plain Vanilla") that productivity and competitiveness are showing loose correlations with IT spending. This issue of whether IT matters evidently continues to be a debate, yet I wonder if the problem is that the not-new, almost 10-years old answer (see Paul Strassmann on management) is simply unpopular and is still getting ignored. Occasionally, this answer gets to poke its head into the room, opening the door all by itself.

As Koch reports: "Economists and IT pundits are divided as to whether IT has any real productivity impact at all... Eric Brynjolfsson is outspoken in his belief that there is an improvement in productivity and competitiveness among companies that spend heavily on IT... But Brynjolfsson, who is management professor and director of the Center for eBusiness at the Massachusetts Institute of Technology's Sloan School of Management, emphasizes process change, rather than software. In a recent interview with Gartner, he identified seven characteristics of the 'digital organization' from his study."

Interestingly, nearly the entire set of characteristics discussed in reference to Brynjolfsson's study have to do with *performance management* and not with productivity. Here's what I mean: productivity is about the level of output that is achieved through the consumption (i.e. processing) of resources. That's why process design is always at the heart of the productivity issue: does the process effectively connect the kinds of resources used with the kind of output produced? Why or why not?

That working definition makes it more apparent why a "debate" on IT's value to business productivity is somewhat strange. A business uses the output of its processes as its resources, in order to achieve other outputs on a different level of impact. IT's role (point A) typically is to improve and sustain the ability of processes to generate the desired process outputs (point B); thereafter, the business must make use of the process outputs (point B) to generate business outputs (point C). So we're simply looking at "productivity" on two different levels.

Regardless of the company studied, we will not find point A driving point C. We will find point B being managed differently from company to company, just as we find point A being managed variously. Dealing with point B is where Performance Management comes in, to begin to translate the second (upper) level of productivity into competitiveness. Performance management will bring a model of why productivity makes a difference in establishing a company's necessary relative advantages in competing for position, revenue, mindshare, and other elements of success.

This doesn't mean that performance management isn't active at the "point A" level. But at that level, the most important observation is that level A productivity's potential roles in business productivity be clearly distinguished and understood: -- a pre-requisite is not the same thing as a cause.

Managing pre-requisites is different from managing causes, in that causes are tightly bound to forecasted effects, while prerequisites are bound only to opportunities. That is, causes generate effects, but prerequisites only allow them.

Draw your own conclusions, but visit Gartner for the interview, and many thanks to Mr. Koch at CIO.com.

Posted by Malcolm Ryder at April 27, 2005 11:25 AM

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